Tech Mahindra’s $500m-plus Telefónica deal, one of its biggest ever deal wins

Under the agreement, Tech Mahindra will modernize Telefónica O2’s IT infrastructure. The deal is expected to accelerate in the second half of fiscal 2027.

The Pune-based IT company announced the deal in its post-earnings press conference on January 16 but did not name the customer. Management later said it was one of the biggest deals in Europe and the biggest ever.

The company’s biggest previous deal was a $700 million contract with BT plc, formerly British Telecom, in July 2008.

For Tech Mahindra, which reported a decline in revenue last fiscal year and has struggled to grow in its core telecoms business, the deal offers rare revenue visibility and momentum at a time when big IT contracts are becoming increasingly scarce.

Income impact

The five-year contract represents incremental revenue of about $100 million, or about 1.6%, over average annual revenue. Tech Mahindra closed the last fiscal year with revenues of $6.26 billion, down 0.21% year-on-year.

“The revenue we’re talking about is completely new,” CEO Joshi said on the Jan. 16 call. “Even though this is an existing customer, the earnings we’re including in our big deal are just the new component.”

The win represents a shot in the arm for Joshi, who took over as CEO in December 2023 and has since charted a three-year turnaround roadmap. Under Project Fortius, announced in April 2024, Tech Mahindra aims to grow faster than its peer average and increase operating margins to 15% by FY27.

Tech Mahindra beat out Japanese IT outsourcing firm NTT Data to secure the contract, according to two people aware of the matter. Although the company does not disclose the number of customers worth more than $100 million, its financial statements show that it has 28 customers generating more than $50 million in annual revenue.

Telecom backlash

Analysts welcomed the deal and noted its importance to Tech Mahindra’s telecom sector, which contributes to more than a third of the company’s revenue.

Motilal Oswal Financial Services analysts Abhishek Pathak, Keval Bhagat and Tushar Dhonde said in a note: “The telecommunications sector recorded 4.6% year-on-year growth in USD terms, unlike the decline seen in nine of the last 10 quarters. Sustaining this growth is crucial as telecommunications is a major impediment to growth for TechM.”

Historically, many of Tech Mahindra’s biggest deals have come from telecom customers. The company last signed a $500 million contract from Etisalat-owned Swan Telecom in 2009, and in 2021 won an IT outsourcing deal from Telefónica Germany for an undisclosed sum.

Questions sent to Tech Mahindra seeking clarification remained unanswered.

Telefonica context

Telefónica is a Madrid-based telecom operator that operates Virgin Media O2 in the United Kingdom. ended the calendar In 2024, revenues rose 1.6% annually to €41.3 billion ($48 billion).

This also marks Telefónica’s second major IT outsourcing deal with an Indian IT specialist in recent months. As reported by Mint On December 17, Telefónica’s UK arm signed a $1 billion, 10-year IT outsourcing contract to Tata Consultancy Services Ltd.

Mint He could not independently identify the differences between the two contracts, but one of two people familiar with the matter said Telefónica split a large deal in half. This is an anomaly as large companies reduce the number of IT providers they work with.

Virgin Media declined to comment.

Joshi said the overall demand environment remains largely unchanged but there appears to be cautious optimism.

“The demand environment has certainly strengthened a little bit. I won’t say there’s been a dramatic change or that we’re out of the races, but it certainly reflects that the environment is a little bit more stable,” Joshi had said earlier in the press conference.